So there has always been plans in the pipeline to expand the business to more than one state. There is an existing Limited Liability Corporation (LLC) in place, now there is the thought of what is the next step? As a business owner, it is important to realise that if the business will have a presence in multiple states, then yes, the business will need to register as a foreign LLC in multiple states.
What is a foreign LLC?
The moment that an LLC expands beyond state lines, then it is considered to be foreign, this is only for all the other states besides for the one where the LLC was founded. As a business, it is crucial to register for a “foreign LLC” in any new states where the business will be conducted. Businesses need to realize that failure to do so can lead to “piercing your corporate veil”, incurring financial penalties as well as the annulling of important legal contracts. Piercing your corporate veil refers when creditors of the LLC goes unpaid, the creditors could then decide to sue the business owners, proclaiming that the business should be held personally liable for the debts incurred by the business. Instances, where creditors could be successful in their efforts, can occur when the company is seriously undercapitalized, instances where neither the company or the owners did not separate identities as far as their business affairs are concerned as well as in instances where the actions of the company were fraudulent or wrong.
Each state has specific requirements which qualify for how business can conduct business within states. Generally, it is considered that an LLC operates in a state where there is a business bank account, an office or store or any other commercial site, property ownership, a representative for a distributor or manufacturer, conducts business or transacts business and where there are employees. It is highly recommended that the business should first consider consulting with a lawyer, to find out more about particular circumstances as well as specific state requirements regarding the registration of a foreign LLC.
What are the types of LLC’s?
- Domestic LLC – is applicable for when business is conducted within the state in which the LLC was formed.
- Foreign LLC – is applicable for when the business owner decides to expand the business to a new state, in such instances the business will then need to register in that state for a foreign LLC.
- Professional LLC – are applicable when a business plans to perform a professional service. Therefore certain members from this LLC need to have the necessary state license to account for their professional qualifications. Forming a Professional LLC can be rather tricky, therefore it is advised that one consults with legal counsel first, also noting that the limit of personal liability is not extended to professional malpractice claims.
- Series LLC – this is the most unique form of an LLC out of all the other LLC’s. The liability extends from a single “parent” across to all “child” businesses. Protecting from liabilities all of the other businesses under a single series. Note that this service is currently only offered in Alabama, Delaware, Washington D.C., Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Montana, Nevada, North Dakota, Oklahoma, Tennessee, Texas, Utah, and Wisconsin.
How do you start setting up an LLC?
The process of forming an LLC is rather easy, and can be broken down into a six-step process:
- Select your state:
- Name you LLC:
- Choose a registered agent:
- File the articles of organization:
- Create an operating agreement:
- Get an EIN:
So the business already has an LLC in place in the state in which the business is being conducted, Domestic LLC, and now there is the opportunity for expansion. The route that needs to be followed is foreign LLC in the new state where the business will be conducted. All business owners should realize that it is not recommended to form an LLC in a state where no business will be conducted, as this will incur unnecessary costs that vary from state to state.